Why Outsourcing Shipment Tracking to Third Party Logistics can Hurt You
Shipment monitoring is an essential service provided by 3PLs. When you send a shipment it typically comes with a tracking number that identifies the shipment and it’s whereabouts in the system. Although this is regularly updated, it is not real-time tracking. It will simply show you when thee shipment was picked up, who picked it up, when it was loaded on the aircraft, when it arrived at a sort facility, and so on.
With the advent of IoT it is now easier than ever to implement real-time tracking that shows the exact geographical whereabouts of a shipment. However, it comes with a price tag, and not everyone needs this level of traceability. Therefore, most supply chain managers rely on thee systems in place provided by the 3PLs. These are not adequate in some cases, especially for Pharmaceuticals and temperature sensitive products.
Let’s examine a typical situation that a company shipping temperature sensitive products might find itself in. A pharmaceutical company needs to ship a batch of vaccines to the other side of the world. There are regulatory compliances that must be adhered with for temperature controlled vaccines. The vaccine vials themselves have a primitive monitoring system, a vaccine vial monitoring label which will change color based on the total exposure to elevated temperatures. However, this is not sufficient, they want to know exactly what the temperature is at any given time, have a graph of the temperature during the journey and be able to take action if temperature excursions are imminent.
The question the supply chain manager is asking though is “who should be responsible for implementing such a tracking and monitoring system? Is it the pharmaceutical organization, or the 3PL transport partner themselves?”
Some supply chain managers may make the decision based purely on the financial investment, the time and effort involved. They may rely on the 3PL to provide this service, if available, it will undoubtedly increase the service costs. Overtime, if many shipments are sent, these increased costs will overtake the initial investment in their own monitoring system.
Return on Investment (ROI)
For any organization the first thought is always ROI. If we invest x amount of money in this system, how many years is the payback? What advantages does the system give me? Sometimes it is easy to quantify, if process y costs x and takes z time to do, by investing (CapEx) in a certain machine or software could reduce the costs (x) and time (z). This means improved efficiency, ability to met more demand, and lower costs. So, over a certain period of time, there will be a payback, after that you are in profit through reduced operating costs (OpEx)
So what does our hypothetical supply chain manager do? He figures out that paying for a higher level of visibility and monitoring service through the 3PL results in higher shipping charges, but by investing in their own system, there is a payback period. Owning their own monitoring system gives access to cheaper shipping rates, not being tied into one provider who has the services available.
There are other ancillary benefits associated with being in control of their own system. When outsourcing to a 3PL you may experience the following problems :-
- Not achieving maximum value from the data: If you are shipping through multiple 3PL’s it will be near impossible to have a single dashboard that shows the data across different logistics companies. Often shipments may start out with one company, then be transferred to local subsidiaries and partners upon arrival in country.
- Conflict of interests: It is of course in the best interest of the 3PL to show compliance with the temperature requirements for the cargo. They could face fines, returned shipments and loss of reputation if temperature excursions occur. How do you know the data has not been manipulated and re-purposed to serve the interests of the transport company?
The operational costs of implementing an IoT digital twin system for visibility throughout your supply chain gives a win-win approach. You are in control of your data, you can proactively take action when temperature excursions might occur, comply with regulatory requirements and be safe in the knowledge you are delivering a quality product to the end user. This protects your brand name your reputation and the health of the end users.